Kicillof gets closer to Washington and the Paris Club
Friday, December 13, 2013
By Martin Kanenguiser
The Economy Ministry yesterday got behind the leadership of ex-minister Hernan Lorenzino to move forward on an agreement with the Paris Club, which will not be easy to conclude over the differences in official terms offered by both sides.
After Lorenzino’s trip to Paris, as head of the debt restructuring unit, sources at Economy indicated to LA NACION that Minister Axel Kicillof supported the idea of an agreement with this group of countries with which Argentina is in default since the end of 2001.
In fact, Lorenzino traveled with ex-Finance secretary Adrián Cosentino, who is his second at the mentioned unit, and with Finance Undersecretary Germán Plessen, who remains in office with the new Finance Secretary, Pablo López.
The trip, which began on Sunday and which ended yesterday, served to formally restart the negotiation beyond the figures that Argentina owes (around 9.5 billion dollars), with an offer that would be brought forward that was proposed to the companies that won lawsuits in the ICSID (the arbitral tribunal of the World Bank), as LA NACION reported yesterday.
At Economy they clarified that the final offer is still being put together, but they emphasized that “the minister’s intention is to end with the problems that generate problems for Argentina and increase the cost of financing.”
However, the negotiation will not be easy, as the creditors proposed that if Argentina doesn’t offer a short pay term (which, for them, is 18 months maximum), the International Monetary Fund (IMF) must intervene as an agent monitoring the disbursement; as such, the government is planning a schedule of up to 10 years, with bonds, in a context of falling reserves which make it difficult to make a down payment.
"The situation is complicated because for a short payment there is no money and for a long payment the creditors demand that the IMF be in it, as happens with other agreements with the Club,” said sources close to the negotiation to LA NACION.
On the other hand, the source confirmed that, as LA NACION reported, a parallel channel of negotiation from the United States opened up through an ex-official, to rebuild relations and try to overcome the mutual mistrust, beyond the embassy that Cecilia Nahon runs.
The ex-official was received by Alex Lee, the man in charge for following Latin America at the State Department.
Change in focus
There is was agreed that it would be important, in addition to moving forward on the Paris Club issue, that Argentina leave the new debt swap open – which was announced, voted on by Congress, but until now has not come together – without a closing date and that they avoid the focus on the United States appearing to support Argentina in a bilateral manner, and emphasis instead be put, in the question of the holdouts, on there being a global risk from the complaint of the “vulture funds.”
Also, it was suggested that aides to Pope Francis, and the experienced diplomats of the Vatican, be used as intermediaries between both parties.
The intention of the meeting was to put forth a more balanced scenario, between the unrealistic discourse of the government and the sometimes “apocalyptic” view put forth by leaders of the opposition before officials from Washington, explained the source, with the intention that the Obama government contribute to an orderly transition until 2015, after the electoral defeat of the government in the legislative elections of October.
The Paris Club marks it territory: the debt surpasses US$10 billion
Negotiators from the entity clarified also to Argentina that it continues to demand the backing of the IMF
Friday, December 13, 2013
by: Carlos Burgueño
The Paris Club clarified yesterday to Argentina what the real framework will be to start to negotiate an eventual agreement, to pay the debt that the country has with that entity since the default of 2001. The government of Cristina de Kirchner will have to accept, unfailingly, the mission set forth in “Article IV” of the Charter of the International Monetary Fund (IMF). Also, the total debt that is due to the member countries now is more than US$10 billion and is placed at around US$10.4 billion. Beyond both conditions, the Paris Club could accept payment through a public bond that quotes openly, and with the possibility of being negotiated on the international financial markets. In this case, they clarified to the first envoys to discuss these conditions, that they cannot speak of haircuts. This option is only possible in the case of a cash down payment and a plan of no less than 24 months. With reserves navigating around US$31 billion, it’s a utopic option. So the bond plan is the one left.
The one in charge of discussing, eventually, an agreement with the Paris Club, will be ex-Economy minister Hernan Lorenzino from his office as ambassador to the European Union in Brussels. However, it will be from another seat, as head of the Unit of Foreign Debt Negotiation, where he will travel from the Belgian capital to Paris to concretely discuss an eventual agreement. For this, beforehand he needs Cristina de Kirchner herself to give him concrete instructions, limits and ceilings, definitively an exact framework to accept or reject proposals and counter-proposals to be made to the entity.
Initially, what Lorenzino had in mind was the option of a bond similar to that was given to Azurix, Vivendi and CMS Gas, companies that had won judgments in the ICSID; and to the Gramercy Fund of Robert Koenigsberger, which bought the debts from three others that also had favorable decisions in this tribunal of the World Bank.
The idea is a long-term Boden X bond to pay for principal, and the Boden XV for interest, with a 7% annual financing in dollars. Also on offer would be a special issue of the BAADE, with a percentage of between 10% and 20% with possibilities of applying it to productive processes within the country. Both emissions would have a term of not less than 10 years. According to the first surveys that Argentine technical staffers who spoke with colleagues of the Paris Club picked up (all now in informal terms), the possibility of the debt issuance could be accepted; but, in that case, the entirety of the debt will be demanded of Argentina. At this point, it was clarified for the Argentine negotiators that currently accrued interest has raised the total above the barrier of US$10 billion, and that through December 2013 it will be slightly above US$ 10.4 billion. A figure substantially greater than the US$9.450 billion which former Minister Amado Boudou had mentioned hours before leaving his post in November 2011. That was the last date when the parties had been talking of a potential agreement. Then, the European crisis, the beginning of the plan to tend to the reserves and the currency clamp led to whatever project to regularize the situation with the entity to be shelved.
On the other hand, the entity also clarified to local emissaries that the necessity of having oversight within the guidelines of "Article IV" of the IMF remains in force and is not negotiable.
The Paris Club has this conditionality in its Charter, and dating back to the first serious contacts to normalize the situation, in the middle of 2010 (also with Minister Boudou), it has been a firm and non-negotiable position. It is in its bylaws and only with a unanimous vote of the partners could the situation be resolved. These include Japan, Britain, Canada and Germany, who have unwavering positions in this regard. It has been mentioned in Buenos Aires that, eventually, only Spain (which is owed some US$1 billion) would be willing to negotiate.
A possible mission provided for in "Article IV" of the entity managed by Christine Lagarde means that the government must accept that technical staff from that agency circulate within official offices and review the Argentine economy’s numbers; something that Kirchnerism has avoided since 2006 and is one of the banners of the movement. Anyway, a possibility of this kind is also being requested from the IMF itself, within the plan to accept the new Consumer Price Index (IPCNu). As this newspaper reported yesterday, the entity requires that Argentina leave allow these inspections to begin in the period of September 2014 - February 2015; as a first step toward taking away the "motion of censure".
The main driver for negotiations between Argentina and the Paris Club of creditor countries to reach a satisfactory conclusion, in addition to Spain, is the United States. The government of Barack Obama already warned the country that only with an agreement with this organization could there be a release of funds from international financial organizations and the Eximbank, as well as to facilitate the return of the government to the international markets.